WGU - C211 Global Economics for Managers:Exam questions with 100% correct answers

Explain the New, Evolutionary, and Pendulum views of Globalization. How do these differ from one another? - ANSWERS New globalization is a new force sweeping through the world in recent times. Pendulum globalization is a pendulum that swings from one extreme to the the other from time to time. Evolutionary globalization is a long historical evolution since the dawn of human history. What is Foreign Direct Investment? - ANSWERS Investment in controlling and managing value-added activities in other countries. What different political views exist on FDI? - ANSWERS Radical - hostile to FDI, roots to Marxism, treates FDI as an instrument of imperialism and as a vehicle for exploitation of domestic resources by foreign capitalists and firms. Free Market - suggests that FDI unrestricted by government intervention will enable countries to tap into their absolute comparative advantages by specializing in the production of certain goods and services.. win-win logic FDI friendly polices Brazil, China, Hungary, India, Ireland, Russia. Pragmatic Nationalism - Practiced by most countries. Viewing FDI as having both pros and cons and only aprroving FDI when its benefits outweigh costs. What benefits exist to a country receiving FDI? - ANSWERS Capital inflow - can help improve a host country's balance of payments Technology - can create technology spillovers that benefit domestic firms and industries Advanced managment - know-how may be highly valued. FDI creates jobs both directly and indirectly. Direct benefits arise when MNEs employ individuals locally. Indirect benefits include jobs created when local suppliers increase hiring and when MNE employees spend money locally resulting in more jobs. Repatriated earnings from profits from FDI. Increased exports of components and services to host countries. Learning via FDI from operations abroad. What costs exist to a country receiving FDI? - ANSWERS -Loss of sovereignty because of decisions to invest, produce and market products and/or to close plants and lay off workers in a host country are being made by foreigners. -Adverse effects on competiton. May drive some domestic firms out of business. Having driven domestic firms out of business MNE's in theory may be able to monopolize local markets. -Capital outflow when MNE's make profits in host countries and repatriate (send back) such earnings to headquarters in home countries, host countries experience a net outflow in the capital account in their balance of payments. How do resources and capabilities influence the competitive dynamics of a business? - ANSWERS Strong resources and capabilities help to compete and/or cooperate more effectively. What is resource similarity and how does this impact competitive dynamics? - ANSWERS Extent to which a given competitor possesses strategic endownment comparable, in terms of both type and amount, to those of the focal firm. Give a description of the classical theory of international trade. - ANSWERS Mercantilism, absolute advantage, comparative advantage How would the modern theory compare to the classical theory? - ANSWERS Modern Trade Theories are the major theories of international trade that were advanced in the 20th century, which consist of (1) product life cycle, (2) strategic trade, and (3) national competitive advantage of industries instead of relying on simple factor analysis, modern theories rely on more realistic product life cycles, first-mover advantages, and the "diamond" to explain and predict patterns of trade. Compare absolute advantage to comparative advantage. What differences exist? - ANSWERS Absolute advantage is the ability of an individual, firm or country to produce more of a good or service than competitors when using the same amount of resources. (WinWin) Comparative advantage is the ability of an individual, firm or country to produce a good or service at a lower opportunity cost than other producers. (Opportunity cost) What is mercantilism and why is this an important term? - ANSWERS An economic theory that advocates government regulation of international trade. It is an important tool in creating more wealth for by reducing the trade deficit. (Zero-sum WinLose) What are the critical features of the product life cycle? - ANSWERS New, maturing and standartdized First theory to incorporate dynamic changes in patterns of trade. More realistic with trade in industrial products in the 20th century. How would you describe strategic trade? - ANSWERS A theory that suggests that stategic intervention by governments in certain industries can enhance their odds for international success. How are supply and demand related to the exchange rate of a country? - ANSWERS The supply of a currency is determined by the domestic demand for imports from abroad. Which theory came first, mecantilism or modern-day protectionism? - ANSWERS Mercantilism If a company seeks to limit foreign exchange rate exposure in the forward direction, what is the most effective way to do this? - ANSWERS Forward Transactions (currency Hedging) What is transaction risk? - ANSWERS The exchange rate risk associated with the time delay between entering into a contract and settling it. Explain the concept of "hedging" as it relates to reducing various types of risk. - ANSWERS Currency hedging- the practices of protecting traders and investors from exposure to the fluctuations of the spot rate. Strategic hedging- spreding out activites in a number of countries in different currency zones to offset any currency losses in one region through gains in other regions. What advantages exist with the first mover? - ANSWERS Benefits that accure to firms that enter the market first and that late entrants do not enjoy, propriety technological leadership and preemption of scarce resources. What advantages exist with the late mover? - ANSWERS Benefits that accrue to firms that enter the market later and that early entrants do not enjoy, opportunity to free ride on first mover investments and resolution of technological and market uncertainty. Consider the model of foreign market entries. How is scale-of-entry related/relevant? - ANSWERS Equity vs non-equity modes of entry, how much you are willing to commit to entering the foreign market. Scale of entry is the amount of resources committed to entering a foreign market. How do institutions reduce uncertainty? - ANSWERS Curtail transaction costs and combating opportunism Discuss and compare the three pillars (regulatory,normative, and cognitive) - ANSWERS Regulatory- the coercive power of governments Normative- how the values, beliefs and actions of other relevant players known as norms influence the behavior of local individuals and firms. Cognitive- refers to the internalized, taken for granted values and beliefs that guide individual and firm behavior. Compare formal and informal institutions. - ANSWERS Formal- Laws,Regulations and rules (Regulatory) Informal- Rules are not formalized, values (Normative,Cognitive) Three legal traditions - ANSWERS Civil Law- Deived from Roman Law, Oldest, most influential and most widely used (France, Brazil, China) Common Law- Shaped by precendents and traditions from previous judicial decisions. English speaking countries. (U.S., Canada, Australia) Theocratic Law- Based on religious teachings. Jewish law and Islamic law